Learning financial ropes

An interesting classroom experiment is under way at Ranzau Primary School in Nelson.

Instead of the usual textbook math lessons, students as young as five are learning about what it takes to make a buck, and how easy it is to blow it, how to live within one's means and other ABCs of daily money management.

The concepts and teachings are not isolated to a 45-minute session either. Where possible, they are incorporated into art, music, social studies, science and other areas of academia traditionally confined to a more narrow focus.

"Our aim is to make them informed users of money," explains Ranzau's Year 5/6 teacher Dave Sampson.

Ranzau is one of 10 schools across the country chosen to take part in an early financial literacy programme to see how well kids can cotton onto money maths when it is applied to everyday situations.

Even though some of the subjects being observed still believe in the tooth fairy, they are proving themselves wiser than the level of their piggybanks would suggest.

Six weeks since the pilot got underway, Ranzau's new entrants are running a wee shop in their classroom, the year ones are selling fudge on the street and students in Sampson's class earn salaries for coming to school and weigh the pros and cons of renting versus owning property. Their paychecks are phony and their property nothing more than the desks and chairs they are required to occupy everyday but the artificiality does not bother the students.

"They're loving it, they're very enthusiastic," Sampson says.

That is encouraging news for Retirement Commissioner Diana Crossan whose department spearheaded the pilot programme.

Crossan's interest in early learners might seem out of step with her office but the commissioner says her job title belies a bigger mandate and more ambitious goal: getting five to 105-year-olds switched on about money.

"It's a very unfortunate name (the Retirement Commission) because our role is to help New Zealanders prepare financially for their retirement and all the research showed that in the '90s, focusing on retirement was too late."

Since taking on the post in 2003, Crossan has been crusading to get financial literacy into the classroom. Survey upon survey reveals a gross ignorance about basic money management and financial products that have come to play a growing role in daily life. Crossan wants to turn the situation around.

"What we want is for people to make the most of their money throughout their lives so they are better off. What we have found is that many people don't have all the information when they are buying their house, or buying the big TV or choosing where to put their money they don't even know what questions to ask."

Lecturing kids barely out of preschool on the virtues of KiwiSaver may seem a tad premature, but Crossan says introducing them to financial building blocks is not.

"The world of finance is hugely more complex than it was in the past, which is unfortunate. When I went to school you couldn't even get into debt or have a credit-card and people forget that until I remind them. Now kids today can get credit cards and financing contracts and get a negative rating before they even know what the word means." This month, Crossan is off to Brazil where she was invited to talk to leading government officials there about New Zealand's efforts to make money a mainstream subject for kids in the classroom.

Around the world, there are similar educational drives afoot to lift the financial literacy of countries whose citizens have found themselves hopelessly adrift in debt.

According to Harvard University historian Niall Ferguson (who wrote a book on the subject recently) it is a "well-established fact" that "a substantial proportion of the general public in the English-speaking world is ignorant of finance".

Evidence of that is starting to spill out in the research.

In Britain, for example, the country's financial regulator found that a quarter of adults did not know their pensions were invested in the sharemarket.

A separate United States study found that four out of 10 credit-card holders did not pay the full amount due on their credit cards every month and that one-third of them had no clue what the interest rate on the credit card was.

Crossan says financial institutions are partly to blame for not making the fine print more accessible and she wants to see banks do a better job of educating its clients.

Some in the banking sector might quarrel over that recrimination but over "many cups of tea with banking CEOs," Crossan at least won a partial restitution.

She was able to talk several banks into putting up $400,000 to help fund the pilot programme. If the financial sector has a part to play in preventing a future generation from the same debt-stricken fate as their parents, Crossan also believes educators need to do their bit.

She is determined to get kids as familiar with compound interest as they are computers.

"For some reason, we're about 20 years behind in the education system catching up with what has gone on in the world. In IT, we took some time to catch up but now it's way out there. In the financial sector we've also had major changes but people haven't been taught about them. I don't think people always understand that when you pay for something there is a price for the transaction, that sort of thing.

"We want those things discussed, and talked about openly."

And if Crossman has her way, those kinds of issues will soon have a much bigger airing. Her department has been working closely with the Ministry of Education to make early financial literacy part of the curriculum.

Back in Sampson's classroom, students are lapping it up.

At the beginning of the term, students were asked to research a job they had an interest in, find out how much it paid and pitch it as a mock occupation and salary.

Since the start of term three, they have been getting paid (on paper) to come to school.

Daily Sampson presents the students with opportunities to spend or save, for example buying a low-term, high-security bank deposit or buying free time on the computer. They are expected to keep a daily log of their credits and debits and will work out at the end term whether they are richer or poorer for their choices.

"We wanted them to experience the different options of what they can do with their money, so when they're presented with a scenario or circumstance in life, they can be informed about how they make that decision," says Sampson.

The students were fast learners.

"We've had a few students really take it on board and go beyond the four walls of the classroom and look at how they can apply it themselves." Sampson says he expected the kids would have a natural interest in money but was floored by just how keen they were.

"The fact that they're using (the lessons learned) on their own initiative, that's ideally what we're after."

But will today's fudge-selling six-year-olds really be any wiser, or any less indebted to the bank, 20 years from now when faced with similar consumer temptations and living expenses?

Hard to say.

Crossan says the research on that front is thin at best. In the 1960s, scholars in the United States tried to test the theory of delayed gratification (a principle which could be applied to saving money) on a group of four year olds with mixed results.

Kids who were able to resist eating a marshmallow for 20 minutes with the promise of another later on were found to be better adjusted, more dependable adults and also scored higher on tests.

But is one's ability to resist the immediate gratification of gobbling a sweet at age four really a fair, or accurate, determinant of success later on in adulthood? It is probably a matter for more serious scientific testing and debate.

Either way, Ranzau's principal Murray Cain says he believes children, given the proper tools, will at least be able to make better informed choices in the face of consumer temptations later on in life.

"If you're looking at the big picture, we know we're in an environment where it's spend now and think about the consequences later. We know the debt of young people is becoming an issue for New Zealanders so we're hoping, through better education programmes and changed attitudes, people will be able to make better, more sensible decisions."

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